Can e-tailers deliver on festive demand?

At around 11:00 AM on October 16, a human resources consultant in Bengaluru got an unexpected bonus when a product from Flipkart was delivered to him. Expecting to cursorily sign off for his shipment of apparel, he was instead greeted at his door by none other than Sachin Bansal, chief executive and cofounder of Flipkart, who had reprised his role of part-time deliveryman.

While Bansal had enlisted himself as a delivery person when Flipkart was a fledgling online book ordering service back in 2007, on Friday he was back on the road, reconnecting with customers. Worth around $1.3 billion, Bansal provided not just great optics for the company, but also an opportunity to personally test the company’s beefed-up logistics and delivery network in the midst of its biggest sale yet.

Across the day, he and other senior executives at Flipkart made dozens of deliveries across the country as they got a first-hand glimpse of the ecommerce industry’s meteoric ascent in India.

All of the past week, the three largest players in this space — Flipkart, Snapdeal and Amazon — held discount sales to try to catch the eye of profligate customers at the beginning of a three-month festive season.

And, if the numbers and commentary are any indication, these companies have made a major statement, not just with explosive growth in sales, but also by connecting hundreds of thousands of first-timers to online commerce and giving folk in the hinterland a chance to buy products that were previously out of reach to them.

The numbers of note are almost too good to believe. For example, Flipkart sold 5,00,000 mobile phones within 10 hours of sales opening; elsewhere Snapdeal sold handsets worth `500 crore in a single day; Amazon, with over two decades of hosting massive sales on days such as Black Friday (the Friday following Thanksgiving) and Cyber Monday (the Monday following Black Friday) in the US, had 10 lakh products primed for next day delivery. Some categories sizzled for Amazon — in an hour, more mobiles were sold than in a complete day; and in under six hours it sold more appliances than it usually sells in a week. Snapdeal, meanwhile, saw a 350 per cent in-crease in new user count as consumers stampeded to make the most of the deals on offer on this online marketplace.

Pulling Out All the Stops

Mukesh Bansal, head of commerce platform, Flipkart and chairman, Myntra, says the company pulled out all the stops to make the sale a success. “India shops the most during this time of the year,” he says. “(The sale is) bigger and better compared to last year and we have worked towards ensuring a seamless shopping experience.” Flipkart wants to keep ahead of the competition in a period of intense sales-driven competition and Bansal believes the firm has all the right ingredients to shatter many records. “Considering the sale will feature… deals across millions of products in all categories from over 40,000 sellers, our aim is to give our consumers nothing less than five days to shop to their hearts content,” he adds.

Elsewhere Anand Chandrasekaran, chief product officer at Snapdeal, says the company has spent the last six or seven months preparing for its sale but, despite all the prep, it has been surprised by the surge in demand. “We expected business to be 10x of our regular demand, but we saw it reach around 17 times a regular sale,” he says. “We are hoping more and more people shop online…we want to convert ecommerce into a healthy habit.” This habit seems to be developing nicely — Snapdeal’s app was downloaded over five million times as people rushed to log in and shop. “Diwali is the time when people discover and rediscover ecommerce,” he adds. “Around twothirds of our orders, for example, came from tier II and III towns… more people are getting comfortable buying online and more are getting online for the first time.”

Sales like these are important for an industry that is at an inflection point. According to data from a BCG report issued in February this year, the overall Indian retail market is expected to cross a trillion dollars in value in five years from around $600 billion currently. However, digital commerce yet accounts for a small share of this pie, even if it is expected to quadruple to $60-70 billion in the same period.

Large ecommerce companies such as Amazon, Flipkart and Snapdeal are all banking on a series of sharp demographic and economic shifts to drive consumers towards their marketplaces.

According to estimates from this same report, the average household income in India is expected to grow from $6,393 to $18,448 in five years, the urban population will increase to 40 per cent in 2020 from 31 per cent in 2010 and by then the number of nuclear families will hit 200 million which, BCG says, will result in a 20-25 per cent increase in spending capacity.

India’s internet user base, meanwhile, is expected to hit 600-700 million by 2020 from around 200 million today and smartphones from 120-140 million to 700 million. As connectivity costs drop, broadband proliferates and newer payment options open up, ecommerce could be set for explosive growth.

Industry executives believe this is a transformational point for ecommerce. “With over 75 per cent of traffic coming via mobile devices, we expect this app-only sale to be the biggest shopping event of the year,” says Flipkart’s Bansal. According to Amazon officials, sales from mobile devices themselves aren’t unique to India — what is special is the millions of people using these handsets as their first point of internet access and commerce.

“There is a mobile revolution going on in India and there’s nothing like it anywhere in the world,” says Snapdeal’s Chandrasekaran. However you cut it, in sale season the mobile is definitely the centre of their universe.

A Sweet Music

These kind of numbers sound like sweet music for Amit Agarwal, the India chief for global ecommerce giant Amazon. In June 2013, the company launched its India business with just two categories — books and movies, but today it is the firm’s fastest growing business globally and has mopped up a $2 billion investment from the HQ and is greedy for more.

Like his peers, Agarwal closely watched Amazon’s Great Indian Festive Sale unfold and was amazed by consumer response.

“This has been one of Amazon’s greatest sales events,” he gushes. “There has been unprecedented demand from consumers and our sellers have seen an eight to 10-fold jump in their daily sales.”

Amazon has lined up one million items for what it calls next-day delivery (by 11:00 am for a fee) and he claims most orders are dispatched in six hours from its warehouses.

“We get around 60 per cent of our orders from tier II and tier III cities…this time we have got 30 per cent from even tier III and IV towns… most categories have had their biggest day ever,” he adds. “We have been preparing for this since the time our last Diwali sale ended, but given that we did our best business in the Freedom Sale barely two months ago, this sharp increase is even more remarkable.”

Even as ecommerce executives bask in these seemingly bright set of numbers, they feel this year’s festival sales could mark a new beginning for the industry.

Rather than a zealous focus on discounts, companies could spend more money and time on the last-mile logistics and delivery and the breadth of their product basket. “To cater to the massive customer demand, we have opened new fulfilment centres (taking the count to 21) across the country to guarantee efficient delivery,” says Flipkart’s Mukesh Bansal. “We have also ramped up the delivery staff strength to 19,000.”

Vigilant Strides

For Flipkart, building a robust technology and logistics backend will be particularly important. The Bengaluru-based company’s sale last year was brought to its knees by a poor backbone, leading to founders Sachin and Binny Bansal issuing an unprecedented apology to customers.

This time, the company is in no mood for any repeats. As more sellers have crowded to Flipkart (it started the year with 30,000 and now has 50,000) the company has redoubled its efforts to keep its customers happy.

According to Arvind Singhal, chairman and managing director of Technopak Advisors, a retail advisory company, the challenge for ecommerce companies may be being heard in an increasingly loud din of sales and promotions.

“Ecommerce companies today bombard consumers with offers, sales and promotions,” he says. “Consumers now realise they don’t need to rush for a specific promotion, since another one is around the corner.”

As consumers have become inured to frequent sales and deep discounts, ecommerce companies have had to work harder to get their attention. “Ecommerce companies need to move away from a habit of incessant high-decibel promotions to building deeper customer engagement,” he adds.

Industry observers suggest that ecommerce companies need to build compelling reasons for consumers to visit their apps and sites. “Retailers need to keep coming up with reasons why people should buy,” says Harish HV, a partner with Grant Thornton, a mid-sized investment bank.

“For ecommerce players, between 30 per cent and 40 per cent of sales come from the Eid, Diwali, Dussehra season.

They would also be gaining more sales from physical retailers than a year ago.” As companies bol-ster their technology and logistics networks, fewer complaints are cropping up. “As people get more comfortable with shopping online, the discounts will taper off, though they will still have some advantage over physical stores,” he adds. The challenge, he contends, will be for ecommerce to take a larger share of the overall retail pie from old-world retailers.

That may take some time yet. “I don’t see ecommerce taking any material share in the total market…they probably account for less than a percent and they might go up to 5-7 per cent,” reckons Harish.

At Snapdeal, this year’s sale is being viewed like a World Cup final and executives are sparing no effort to make sure there are no goof-ups. “Across the industry, we are seeing a big shift from discounts and sales to customer experience,” says Chandrasekaran. “We want our logistics team to be prepared, for example, to pack and deliver a large sofa in a day and we’re investing in predictive analytics to ensure our suppliers are not blindsided by a surge in demand.”

This means Snapdeal’s customers will see fewer out-of-stock signs, not be tripped by an app or site crashing on them and have at the end of the day a smoother shopping experience. “We are laying the groundwork for the next few years…once the novelty of ecommerce wears off, people will want a delightful customer experience,” he adds.

Focus on Backend Logistics

The company’s acquisitions and investments are coming in handy at this time. For example, at Freecharge, a company it acquired for `2,400 crore in April this year, the goal to notch up 10 million daily users of its wallet is firmly on track.

Meanwhile, with 1.3 million square feet of space across 63 fulfilment centres, Snapdeal is leaning on its stake in logistics provider GoJavas to ensure it is no longer surprised when this kind of sales surge happens.

Along with a wide selection of products and reducing costs for sellers, improving speed and accuracy of delivery is a key focus for Amazon India. “We have built capacity to meet this surge in demand,” says Amazon India chief Agarwal.

“We have 21 massive fulfilment centres spread across five million cubic metres and have also launched 15 seller warehouses under our Seller Flex program to add to our logistics capacity.”

It is also backing this up with pickup points in 50 cities and two decades of global experience of conducting massive sales globally, especially on occasions such as Black Friday in the US. “We can bring 20 years of experience to this market,” adds Agarwal. “However, in India, we have customised some of this knowledge… for example by building a much lighter mobile app to deal with slower networks.” As breathless sales remain unabated (on Day 4, in the first six hours, the number of laptops sold were equal to a week’s sale, Canon 1200D, the bestselling camera, did a month’s sales in eight hours), Amazon’s (and indeed its rivals’) intense focus on its backend logistics seems to be paying off.